Executive Summary
The purpose of this memo is to discuss the appropriate accounting treatment regarding eVade’s Virginia state sales taxes. The information available as of December 31, 2014, indicates that eVade could reasonably estimate the amount of the potential sales tax liability. However, based on their analysis of the circumstance they concluded that it was not probable that the state of Virginia would pursue any potential sales taxes. As such, it is appropriate based on the fact that it is not probable that the accounting treatment should include the disclosure of estimated amount of unpaid sales taxes.
In March of 2015, after the prior year’s financial statements had been posted, the Governor of Virginia announced a tax amnesty program that eVade decided to take advantage of. Since this information was first announced after the 2014 financials were posted, there is no requirement for a restatement based on their conclusion at the end of the year. The accounting treatment at the time of the announcement of the amnesty program should include a journal entry to recognize the sales tax expense (debit) and the sales tax liability (credit).
On June 15th, 2015, eVade finalized the processing of the paperwork required for the amnesty in the state of Virginia and they paid the required sales taxes. Upon payment of the sales tax, the company would decrease (debit) the sales tax payable and credit cash assets. The following analysis will illustrate in detail the eVade…

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A company can acquire another company in two ways:
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Indirect…

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Prior to 2014…

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